The Pretirement Swim Through the Asset Isles

A lot of planning in life seems like figuring out how to reach the next island.  You aim for the right college, then the right job, then a series of jobs, marriage, buying a house, kids 1, 2, 3 if you have any, moving to a new city, pretirement – all are major island destinations in Life’s Archipelago.  At each stop, one climbs onto a new shore of experience and maturity, surveys the landscape and settles in for a spell.  Pretty soon, all prior change is digested and another island of achievement and growth beckons on the horizon.

 

A lot of planning in life seems like figuring out how to reach the next island.  You aim for the right college, then the right job, then a series of jobs, marriage, buying a house, kids 1, 2, 3 if you have any, moving to a new city, pretirement – all are major island destinations in Life’s Archipelago.  At each stop, one climbs onto a new shore of experience and maturity, surveys the landscape and settles in for a spell.  Pretty soon, all prior change is digested and another island of achievement and growth beckons on the horizon.

During the career phase of life the journey is sustained largely by a salary or two in the household.  It is rare for a person to enter pretirement and be able to instantly command an equivalent income to the salary that got them there.  Instead, they usually have to assess the islands of assets shimmering out in their future, which they’ve created during their career, and begin swimming to the shore of one, consuming what they need there, then swimming to the next one.

These “Asset Islands” have a lot of variety and include retirement accounts at work, IRAs and Roth IRAs, taxable brokerage accounts, home equity, rental property, work in pretirement, a new business, annuities, pensions and Social Security.

I’ve explained how my wife and I hacked our retirement accounts at work earlier than most people do to start our pretirement by using the little-known Rule of 55 .  She is presently dialing work down and enjoying a kind of self-determined sabbatical while she explores when and how to dial paid work back up again.  Vanguard Personal Advisor Services built our financial plan specifically with such periodic sabbaticals in mind on the way toward reaching the final island in the chain, a place we might call No-Work-Atoll (sorry if that’s a groaner).

When she finds her next job she will probably earn less money than in her last role as a busy manager.  That’s possible for us to absorb, because anticipating much lower salaries in the future is also built into our plan, as is the number of years we think we’ll work at them.  The plan’s DNA is, obviously, what we perceive will be greater happiness due to having more time for travel and individual pursuits. Money is one of the means.

We know how we want the next 3 years or so to go.  Beyond that, it’s progressively hazy.  We also know that Stuff Happens.  If a few years from now we want to dial work and compensation up or down, based on what we think will make us most happy at that time, we can adjust the plan to project what the consequences to our stash will be.  If we decide we’ll obtain maximum happiness from working until we drop, which would be a surprise, we can rebuild our plan that way instead.

Though I’m working full-time, as I have for decades, she has swum to the first island, which is her Thrift Savings Account (TSP), and is shaking herself dry in the shade of a coconut tree, rejuvenating for an undetermined period with a nice fresh mango.  I have not decided when I’ll swim to my 403b Island, (the 401k for the non-profit sector) so my first goal is to reach the calendar year in which I turn 55.  At that point, I’ll have the option to leave and start consuming 403b Island if I want to.  After that, our Vanguard plan calls for generally spending down our taxable assets first, the rest of our 403bs and TSP, then our large IRAs and lastly our Roths.

A major destination on our swims is to reach age 70, we hope, at which time we’ll step onto Maximum Social Security Isle, the Big Island we’ll never leave.  That’s a major, annuitized land mass in our future budget, projected to pay about 2/3 of our needs per year.  Rather than taking Social Security at 62 as most people choose or need to do, our plan will have allowed us to wait for as long as possible, which is to age 70, giving our Social Security “annuities” time to grow as bountiful as can be.

It would take the savings equivalent of a couple of million dollars to generate two thirds of our income needs per year sustainably like maximum Social Security will.  Yes, I know the news media, looking for doom and gloom to stimulate and scare us, tries to make us believe Social Security will disappear.  Many FIRE enthusiast assume zero Social Security. However, there are several ways to save this system that millions of voters depend on, and even the worse case, informed scenarios envision only 25% cuts to payments, which our plan can accommodate.

If you haven’t done it, it is comforting and worthwhile to go to the Social Security website and compare how much more you will receive each year if you do not take the payments at 62 but wait until you are 70.  It’s the equivalent of an investment that grows at 8% per year for those 8 years. Multiply that largest-possible annual amount by 25 and consider that annuity value in the millions of dollars an additional component of your future portfolio.  It’s pretty compelling to think this way!

Even after reaching Maximum Social Security Isle and setting up a permanent camp, we can enjoy the benefits of day trips to other places of non-work, most prominently our Roth IRAs, which are sizeable now, are invested aggressively in 100% stock index funds, and still have 15 and 17 years, respectively to percolate and compound for my wife and me before our plan calls for starting to bring them online if we want or need to.  The nice thing about Roths versus Traditional IRAs is that we don’t ever have to pay any taxes when we tap them, nor are we forced to start spending them at age 70.5 to begin paying back deferred taxes through Required Minimum Distributions.  As noted before, our plan’s idea is to have paid down the Traditional IRAs and 403bs so that Required Minimum Distributions aren’t much of a hit.

We might still have our low-interest mortgage until I’m age 79.  Or, we might sell before then and move to, well, an island somewhere.  Either way, this residence contains home equity that is building up every year, which is another asset island we can draw from, sooner or later.  Even if we stay in this house until we swim no more, we have the option of a reverse mortgage to keep the party going.  Or hire a property manager to rent it out.  Again, that’s so far out into the future that we don’t think about it much.

As I said, our plan has us working some or a lot, as we choose, for many years to come.  If we really, really wanted to stop working right now, we probably could, but it would require some fairly major adjustments that we aren’t feeling motivated to make.  We could move to a lower cost of living area or even a different country as many, many American expatriates do quite comfortably, never to see a staff meeting again.

Maybe my wife and I will continue to find new islands of full-time work that will inspire us to swim to them.  On the other hand, maybe we won’t, in which case we’re prepared with a plan to be able to thrive on some of the asset islands we’ve built up.  Either way, the swim will be an adventure we intend to be ready for.

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Pretirement Motivation: The Bosses I’ve Had

The longer I work, the more the quality of my relationship with my supervisor seems to count toward my job satisfaction.  I’ve had several managers in my life with whom I worked for significant stretches of time.  I was really fortunate with most of them but, two of them, well, hoo-wee!  They did more to plant me on the long path to pretirement freedom than anything else.  More later about what I learned from working for them, and getting away from them.  If it’s true that we learn the most from the challenging people in our lives, then I am grudgingly grateful for this pair’s abundant gifts to me.  Or something.

The longer I work, the more the quality of my relationship with my supervisor seems to count toward my job satisfaction.  I’ve had several managers in my life with whom I worked for significant stretches of time.  I was really fortunate with most of them but, two of them, well, hoo-wee!  They did more to plant me on the long path to pretirement freedom than anything else.  More later about what I learned from working for them, and getting away from them.  If it’s true that we learn the most from the challenging people in our lives, then I am grudgingly grateful for this pair’s abundant gifts to me.  Or something.

When I started out in my career, trying to get my first foothold on the rock face of the mountain climb ahead, I didn’t care to whom I reported.  “Just gimme the job and I’ll figure it out.”  In my twenties my attitude and best plan was that I wanted some kind of a coherent non-profit career.

What a strange thing the manager/report relationship is, when you step back.  You’ve had maybe one or two interactions with the person in an unnatural competitive interview process.  The next day, that near-stranger holds a huge amount of power over your every day existence and entire professional future.

Managers matter, too.  In college, one of my very best friends and I held part time jobs working at a golf club with a team of other students.  We took golf bags off carts, cleaned the clubs and kept the driving range stocked with balls.  Clearly, the job was not complicated or demanding, which was a perfect counterbalance to working so hard for good grades.

One day, the assistant golf pro who managed us, an easy-going fellow, was suddenly gone. I never learned why.  In his place was a new guy, Wade, who was memorable to me only because he was wound so tight that it was comical to other people.  It was a golf course, not a hospital emergency room, but Wade was prickly, ambitious and clearly insecure in his new assistant golf pro role.  I don’t actually remember any words he ever uttered but, as with nearly everyone we humans encounter in life, I recall perfectly my inner reaction to him:  Poor Wade’s vibe was, “Saguaro Cactus.”

In fairness, the assistant pro job was probably an important promotion for Wade, because this private club was selective, expensive and had an influential membership.  Wade sometimes manifested his innate stress by snapping at us about this or that inconsequential thing.  He caused the fun tone we had previously enjoyed to evaporate from our little team of eager college kids, who were mostly there to earn a few simple bucks without a lot hassle.

I never had words with Wade but my friend did.  I don’t remember when Wade left my life or vice versa, but I happily and instantly erased him from my mind.  Years later, his name came up when I was talking with my good friend.  Right out of college this talented friend had started his own software company at the dawn of the dot.com era.  His company followed the classic tech startup script: Identify a niche, write some code, create a product, secure some sales, attract  venture capital, grow the staff to hundreds and, in a few years, sell the company.

He still works full time for himself, though he probably doesn’t have to anymore.  I once asked my friend his motivation for starting his own companies, which always awed me as a person who gravitated to what I felt was the comfort and safety of large organizations.  He didn’t hesitate:

“You remember that guy Wade?”

It took me a beat before I did. “Oh, that guy.  Ha!  I wonder where he is now?”

My friend said, “I don’t know, but I couldn’t see myself working for jerks like him the rest of my life.  That guy made me determined to never have a boss.”

I, on the other hand, proceeded to have several bosses, and I take responsibility for my choices.  I always assumed I had no business having a business, and I think I was 100% right about that.   I also never saw myself as an S&P 500 corporate type, because corporations seemed to me dog-eat-dog environments, where the profit motive caused people to step on someone’s head while competing to climb the ladder.  Now that I have some career experience, I’m sure that’s mostly an incorrect Darwinian stereotype about major corporations.  Nor did I see myself in the military, though I really admire people I know who did go that route. I think I might have liked the Navy or Coast Guard, but that’s just my current self speaking to my earlier self, which is pointless.

Rather, I distinctly decided during my senior year in college that I wanted to pursue my passion for trying to make a difference through some kind of public service, and that I’d probably do so working for a larger non-profit organization or government agency.  I assumed non-profit organizations filled with passionate people who worked to make a difference in the world were also places where I stood the best chance of being treated as a human being myself, rather than an expendable corporate cog, which seemed kind of important, too.

I’m not qualified to judge corporate life with any accuracy but I think I was basically correct about non-profits.  I’ve generally been treated well and I feel that, frequently, I’ve enjoyed the satisfaction of having helped make a difference.  For the most part, I’ve reported to humane leaders who appreciated my contributions and who coached and rewarded me fairly.  I’ve tried to model my own behavior as a manager on what I learned from those fine leaders, some of whom remain mentors and even friends.

I also learned a lot from surviving the more toxic leaders I reported to.  A couple of my many educational takeaways from them were:

  1. “Don’t wish for my boss to change.  I’m the one who needs to change something.”  When I have realized in the past that I’ve lost respect for my manager, I have learned that I am one who needs to act.  People above them have different relationships with them, so no one is likely going to act because I’m unhappy.  It was easy to remain stuck by fooling myself that “This is just how work and bosses are”.  That is simply not true.  I need to analyze the situation and calculate my happiness level in it then, if necessary, start sharpening my resume and cultivating my network.
  2. Life is too short to be unhappy at work.  Some of the most miserable people I have ever met address their unhappiness with work by trying to cement themselves in place more firmly.  Their hate for their jobs and unwillingness to solve it through taking action puts them in a posture of constant pain, which manifests in all kinds of toxic behaviors.  They seem to me like a child who thinks that if he holds his breath long enough, the person he’s angry at will pass out.  Not me.  I believe in monitoring my work happiness and remaining prepared to leave when the organization I once worked for has changed around me unsatisfactorily in some way.  I try hard to stay entirely positive and grateful about being employed but also committed to freeing myself to do something else, if needed.  We work in this modern world of few pensions, few protected unions, no contracts and “At-Will Employment.”  If there is to be any fairness at all in such a lopsided world, we have to approach the agreement to hold a job as a two-way street.

Though my current situation is a good one, a big point of this blog is to help me plan for how to spend my time after I eventually retire the sword and want to do something else, as nearly everyone my age seems to be contemplating.  What I want is still a work in progress.  I hope through this blog that I can explore myself but also learn from others’ experiences in creatively tackling this common question stemming from a growing desire for more work freedom.  In other words, I want to start defining my pretirement.

That exploration is still ahead of me but I realize after nearly three decades of working for organizations, during which I’ve had several significant supervisors, some of whom were wonderful to know and others whom I was relieved to flee, I think I am evolving to the place that my good friend started out with:  At some point, I want to be done with bosses.

What about the bosses you’ve had?

Pretirement Freedom

As apt and evocative as the FIRE acronym is, the “Early Retirement” half of it is not our mindset.  Like lots of people, we find ourselves somewhere on the middle of the continuum of paid work-to-unpaid activity.  The best alternative word to “retirement” that I’ve encountered that more accurately describes what we’re about is “pretirement”*.  I look forward to learning and sharing in this blog our own and others’ unique journeys of pretirement.  I think the next enjoyable phase of life will feature dialing economic pursuits up, dialing them down and dialing them all around as we choose how we work.

Have you noticed how the word “retirement” isn’t very useful?

There’s nothing wrong with being retired, spending one’s days however one wishes.  My grandparents had an idyllic retirement in many ways.  They lived in the Georgia countryside, had a giant garden, drove huge American cars, went fishing whenever they wanted, and cooked fresh food nearly every day.  Their retired friends visited them, often unannounced and bearing gifts of produce, leading to spontaneous pea shelling or corn shucking sessions under the car port, where the most entertaining homespun story-telling imaginable occurred.  Best of all, they lavished time and attention on my brother and me as kids, taking us on summer road trips for weeks at a time.  When we were with them, the only time our grandparents weren’t spoiling us with their love and attention was when their soap operas came on, at which time we were hustled outside to play.

The paradox is, they were “retired” but they were also busy.  Today, too, when people finally unchain themselves from paid work many of them soon say, “Wow, I thought I retired but I’ve never been so busy!”  They are volunteering, running errands, traveling, doing house projects, and visiting friends.

Sounds pretty good, right?  So, what’s my problem with the word “retirement”?  In our work-oriented culture, it implies that one’s paid career is over and now the retiree is dedicated to full time leisure.  It’s binary:  You work until you don’t have to any more.  Earning is either happening full time or it’s never happening again.  On/Off.

The problem is, On/Off is not what I observe in very many post-career people.  To be sure, some former workers are dedicated to unpaid leisure.  Bully for them, if they can afford it and if it’s what they choose.  Other people encounter health challenges or care-taking situations that require their focus.  Still, I observe a lot of post-career people doing a variety of activities, which is a mixture of leisure, service and paid.  A lucky few can’t tell the difference.

People no longer working full time might still be at their traditional employer but on reduced hours, or consulting a bit, or driving for Lyft, or running an Airbnb.  I am secretly envious of the clerks down at the hardware store working a few hours per week and seeming to enjoy cheerfully welcoming customers and helping them find what they need.  When I visit REI I seek out the staff my age and ask if it’s fun to work there (yes, apparently, though it’s tempting to buy too many gadgets and clothes).

Even my retired grandparents were economically active their whole lives, considering that they owned some commercial property in town and regularly sold timber from their land to the local paper mill.  My own parents are in their late 70s and are still engaged with part time work.  My dad experimented with full blown retirement at age 75 but soon discovered he liked being an engineer too much, so his former company gladly rehired him to continue designing machines 3 days per week.

“Retirement” also doesn’t seem to fit the new generation of “FIRE” enthusiasts.  If you haven’t yet encountered the burgeoning FIRE community online, it consists of thousands of avid savers and investors aiming to decouple themselves from job-dependence just as soon as possible by becoming Financially-Independent/Early-Retired.

People pursuing FIRE are committed to their goals and to living their lives intentionally to a degree that really impresses me.  The simple idea of FIRE is to leverage one’s job to create permanent financial security.  They limit debt and moderate consumption, using the resulting large marginal income to build an investment portfolio as quickly as possible that is sufficient to support their required spending forever.  Portfolios usually consist of simple, low-cost and entirely passive stock and bond index funds, though a few are building up rental real estate holdings or other businesses.

Someone who can achieve financial independence in their 30s, 40s or 50s thanks to visionary goal setting and uncommon financial discipline is probably not the type of person who will gladly pivot easily to the hammock of full-time traditionally-conceived “retirement,” umbrella drink in hand.  No, these people are so productive that they probably can’t help but continue attracting earned money, only now these “FIREd” folks work creatively on their terms.  That’s what I want to do.

I have been consuming the abundant and inspiring FIRE-related blogs, podcasts, books and other media for years now, so I count myself a fan and avid participant in this friendly, positive and supportive community.

At age 52, I’m also getting very focused on acting on what I’ve learned.  Long before the FIRE acronym was coined and its online community emerged, my wife and I lived beneath our means, saving and investing 30-50% or more of our income starting in our 20s, even as we worked in the non-profit sector our whole careers.  We’ve never felt that we have sacrificed anything important to us.

I lead us on this path, though my wife certainly does her part.  I was compelled to take advantage of the tax reductions and employer matches in our 403b plans (the 401k equivalent of the non-profit sector), which together amounted to a half-price sale on dollars.  There was nothing we really wanted to consume that made us want to dial back savings and turn away from the opportunity to save with the helpful tailwind from the government and our employers.  Rather, we always found little ways to increase our savings rate every year, little by little, until we maxed out all of our tax-advantaged savings vehicles, so we then started saving and investing after tax dollars.

We simply directed our savings and employer matches automatically into stock index funds until our late 40s, when we started gradually adding a total bond index fund into the mix for some ballast to the stocks’ inherent volatility.

We also bought and renovated a few old houses, one at a time as we lived in them, making some profit along the way.  We aren’t aggressive “fixers and flippers” but we discovered that we enjoy learning new skills to beautify our living space as a satisfying creative outlet.  In hindsight, renting places to live would have probably been the better choice from a purely-financial perspective but, then, we obviously do not live our lives in order to obtain maximum money.  After all, we’ve had non-profit careers and, as Jerry Seinfeld once said, “‘Non-profit’.  That does not sound like a good business model!”

I enjoy my full-time job raising money for a wonderful organization that a lot of people rely on.  I still feel a strong sense of mission about my work in philanthropy. Still, like most everyone I know at my age, my wife and I are sort of looking to do something different.  The marginal returns of habitually expanding our careers feel to us to be diminishing a bit.  We’ve accomplished a lot of our career goals.  We’re not as willing to prioritize work over the rest of our lives.

Some people I know, however, have identified things they want to do and are not waiting to do them.  One work friend, a model for our field and at the peak of his earning potential, now that his kids are out of college is dialing down his career in his late 50s to become a clown.  Literally.  He’s reduced his work hours and will attend clown school with a plan to entertain people in nursing homes.  He’ll be the best clown ever, too.

I am not driven to be a clown but I celebrate his intention and want to model it.  Fortunately, I am inspired by the possibilities of freedom in the state of FIRE and its many avid practitioners.  I am making plans to leverage the reasonably strong financial position we’ve built over several decades, using the portfolio as a kind of 3rd salary to support some exploration and discovery that might be different than what I’ve been doing for years now.  I’ll look forward to chronicling the journey in future posts.  I want to learn how other people, like my clown friend, are making the leap, too, and to feature their unique experimentation here.

My wife is taking a needed break this year from her career, which gets me back to the title of this blog:  Through our own longstanding FIRE habits, we realize we can work and live, pretty much as we choose to.  We can dial it up or we can dial it down.  Right now, I’m dialing work up and she’s dialing it down for a while, because we choose to.  If we choose something different later, we’re in a position to act.  For example, we plan to both dial it down in a few years for a gap year or so to travel internationally.  That goal is another adventure I want to chronicle here so we can learn about others’ rich experiences while traveling.

As apt and evocative as the FIRE acronym is, the “Early Retirement” half of it is not our mindset.  Like lots of people, we find ourselves somewhere on the middle of the continuum of paid work-to-unpaid activity.  The best alternative word to “retirement” that I’ve encountered that more accurately describes what we’re about is “pretirement”*.  I look forward to learning and sharing in this blog our own and others’ unique journeys of pretirement.  I think the next enjoyable phase of life will feature dialing economic pursuits up, dialing them down and dialing them all around as we choose how we work.

*The Wikipedia page for Pretirement describes “the emergence of a new working state, positioned between the traditional states of employment and retirement.”